Job creation efforts paltry

Along with his recent budget, Finance Minister Jim Flaherty also tabled a report on jobs which was largely overlooked. Not surprisingly, it showed the Harper government in a good light, and to some extent this was deserved. We did come out of the Great Recession in 2009 better than many others, including the United States.

But it would be a huge mistake to think that the recovery has been as rosy as our government would like us to think. We could have done better in job creation over the past 12 to 18 months, for example, were it not for the Harper government’s determination to balance the budget before the next election. Government has been a drag on the economy when more push has been needed.

If we compare the most recent jobs numbers, for January of this year, with January 2007, the peak period before the Great Recession hit, then Flaherty’s jobs picture is much less impressive.

Between those two dates we have generated nearly 1.1 million new jobs, which sounds good. But this was over a long period of time.

Moreover, there are fewer Canadians of working age actually participating in the work force today (67.5 per cent in 2007 and 66.3 per cent now), there is a smaller share of the Canadian working age population actually employed (61.6 per cent now compared to 63.4 per cent in 2007), and the part-time share of those with jobs is higher now (19 per cent now versus 18.2 per cent in 2007). If we had the same participation rate as in 2007, the unemployment rate today could be closer to nine per cent than the 7.0 per cent reported in January.

Clearly, much remains to be done to improve the jobs situation, especially for young Canadians. We are not generating jobs in particular in the tradable sector — the products and services we can export. Manufacturing employment was 378,500 lower in January this year, compared to January 2007 when there were 2.1 million jobs, while the much-ballyhooed resources sector, including oil and gas, added just 24,600 jobs in this same period, from 352,000 jobs in 2007.

Instead, the broadly defined public sector — health, education, social services and public administration — has accounted for about 55 per cent of all job gains since January 2007. Health and social services showed a bigger actual increase in employment than any other part of the jobs market, with 390,400 new jobs. The housing boom added another 213,500 construction jobs as Canadians took advantage of low mortgage rates.

What public policy has not been able to do has been to boost the tradable sector, especially manufacturing. Overall, the business sector has not been investing in the latest machinery and equipment and other technologies to anywhere near the level needed to improve competitiveness through new products or processes.

As both the Bank of Canada and the international Monetary Fund have highlighted, Canada needs to rebalance the economy so that more growth comes from exports and business investment rather than from debt-financed consumer spending and housing.

But as the Bank of Canada noted in its most recent Monetary Policy Report, “there are no signs of rebalancing towards exports and business investment,” although it pinned hopes for improvement on the recent depreciation of the Canadian dollar. In the meantime, “the shift in the composition of aggregate demand necessary for sustainable growth has not yet occurred.”

A similar message was contained in the recent IMF report on the Canadian economy. “The composition of growth does not yet point to the much needed rebalancing from household consumption and residential construction towards exports and business investment,” it said. Canadian exports had not recovered from the Great Recession and were well below where they should be in a typical recovery.

In a new commentary on manufacturing, TD Economics explains there are other factors besides a weak U.S. economy and an uncompetitive exchange rate hurting Canadian exports. The growth markets in the U.S., for example, are far from the Canadian border and their trade connections to Canada are weak. Growing competitiveness from Mexico, China and India also have to be taken into account.

Yet without much greater attention to manufacturing, and expansion overall of tradable goods and services activities, Canada’s economy will continue to underperform. The Harper government is emphasizing trade deals and training, and these can make a difference. But more is needed, especially in innovation, a green economy and smart infrastructure.

Economist David Crane is a syndicated Toronto Star columnist. He can be reached at crane@interlog.com.

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